(Reuters) - Hewlett-Packard Co (HPQ.N) said it would resume its share repurchase program, a day after sources told Reuters that the company had ended merger talks with data storage products maker EMC Corp EMC.N.
Shares of HP, which also reaffirmed its fiscal 2014 profit forecast, were up 1.8 percent at $32.81, compared with a near 1 percent fall in the U.S. market in morning trading. EMC’s shares fell 1.4 percent to $27.22.
The end of the talks to merge two of the tech industry’s largest enterprise-oriented firms may force EMC to review its stake in VMware Inc (VMW.N) – the other option besides a merger that activist investors Elliott Management was pushing for.
HP, which has not acknowledged it was in talks with EMC, said on Wednesday it was resuming the buybacks as it was no longer in possession of “material information” that had led it to suspend share buybacks in August.
Executives from the two companies were still trying to hammer out a deal as recently as last week, but talks bogged down on price and are now dead, people briefed on the matter told Reuters.
“I think we were always skeptical on the ability of this deal to come through just because of so many players and competing interests in that,” Cross Research analyst Shannon Cross told Reuters.
HP said it remains committed to returning at least half of its free cash flow to shareholders through dividends and share buybacks in fiscal 2014 and 2015 and intends to make up for the shortfall over the rest of the year and 2015.
The company is now engaged in a breakup of its own – separating its computer and printer businesses from its faster-growing corporate hardware and services operations – which analysts say should discourage merger thoughts.
“While this door (a HP-EMC merger) may be closed, we believe EMC faces a hard decision over the coming months around whether to spinoff VMware or change its ownership structure in order to help enhance shareholder value,” FBR Capital Markets analyst Daniel Ives wrote in a note.
Elliot Management, which owns 2.2 percent of EMC, has been vocal about wanting the company to merge or spin off some of its assets, such as its stake in software subsidiary VMware. But EMC has publicly said it plans to keep its company together.
A source close to Elliott Management said that HP buying all of EMC would not create as much value for shareholders as a spinoff of VMware, which is the path the hedge fund is still focused on for EMC.
Additional reporting by Liana B. Baker in New York; Editing by Savio D'Souza and Don Sebastian